CBL & Associates Properties, Inc. (CBL) 2007 Q3 法說會逐字稿

Good day and welcome to the CBL & Associates Properties, Inc. conference call. Today's call is being recorded and will be available for replay beginning today at 1 p.m. Eastern time and running through November 14, 2007 at 11:59 Eastern time by dialing 719-457-0820 and entering pass code 9208463. At this time for opening remarks, I would like to turn the conference over to the President of CBL, Mr. Stephen Lebovitz. Please go ahead, sir.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss third-quarter results. Joining me today is John Foy, Chief Financial Officer and Katie Reinsmidt, Director of Investor Relations who will begin by reading our Safe Harbor disclosure.

This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements.

We direct you to the Company's various filings with the Securities and Exchange Commission, including, without limitation, the Company's annual report on Form 10-K and management's discussion and analysis of financial conditions and results of operations included therein for a discussion of such risks and uncertainties.

During our discussion today, references made to per share are based on a fully diluted converted share. A transcript of today's comments, the earnings release and additional supplemental schedules will be furnished to the SEC on Form 8-K and will be available on our website.

This call will also be available for replay on the Internet through a link on our website at CBLProperties.com. This conference call is the property of CBL & Associates Properties, Inc. Any redistribution, retransmission or rebroadcast of this call without the express written consent of CBL is strictly prohibited.

During this conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. A description of each non-GAAP measure and a reconciliation to each non-GAAP financial measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on the Form 8-K.

Thank you, Katie. The past three months represented one of the strongest transactional quarters in our Company's history, solidifying our growth platform in 2008 and beyond. Just in the past two weeks, we have added over 1.3 million square feet of new development projects to our pipeline with the announcement of three new joint venture developments in Pittsburgh, Pennsylvania, Port Orange, Florida and Statesboro, Georgia. We also completed the $1.03 billion transaction with Westfield to dominate the St. Louis market, adding four exceptional mall properties that enhance and complement our portfolio.

Just last week, we announced an expansion of our international presence into Brazil with a partnership that will not only add value today, but will also provide us with opportunities to invest in the future at attractive returns. We have more great announcements that will be coming over the next few weeks and months that we look forward to making.

Our business flow is strong. We are confident in our ability to generate growth. We have made progress also in the performance of our core portfolio as evidenced by the improved leasing spreads and occupancy this quarter.

Last week, we announced our first South American development with Brazilian developer, Tenco Realty. We will initially invest a total of approximately $15.3 million to acquire a 60% interest in a new retail development in Macae, Brazil. The 220,000 square foot project, Plaza Macae, is currently under construction with the grand opening scheduled for summer 2008. Tenco will develop and manage the center. CBL will also have the opportunity to acquire up to 51% in all future Tenco Realty developments.

Tenco currently has a strong pipeline focused on the under-retailed middle markets of Brazil. The inefficiencies in the capital markets in Brazil provide us with the tremendous opportunity to capture very strong returns on these projects with an acceptable level of risk.

We continue to expand our domestic development pipeline as well. On Monday, we announced a 60/40 joint venture with Faison Enterprises of Charlotte, North Carolina to develop a 600,000 square foot open-air center called Settlers Ridge in metropolitan Pittsburgh. A 150,000 square foot giant Eagle market district, a 16 screen Cinemark theater and additional boxes and restaurants will anchor the project. Construction is progressing for a spring 2009 grand opening.

We also recently announced a new 550,000 square foot open-air development in Port Orange, Florida. The Pavilion at Port Orange is a 50/50 joint venture with the Benchmark Group of Amherst, New York. The project will feature Belk, a 14-screen Hollywood Theatre, junior anchors and specialty stores and restaurants. We will begin construction early next year with the opening scheduled for fall of 2009.

Another newly announced project is a 50/50 partnership with Atlanta-based Ewing Southeast Realty to develop Statesboro Crossing, a 163,000 square foot community center in Statesboro, Georgia. T.J. Maxx and Hobby Lobby will anchor the project along with a national bookstore, pet store and office supply store at 38,000 square feet of small shops.

We are continuing to enhance our properties through anchor and big box additions. At College Square Mall in Morristown, Tennessee, we will add a new 12-screen Carmike Cinema, which will open in spring 2009. At Hamilton Place in Chattanooga, Tennessee, we are under construction to relocate Barnes & Noble from an existing location in an associated center into a new, larger location near the mall entrance in a former theater.

We have recently celebrated grand openings for several of our new developments and expansions. Just last week, we held the grand opening for Milford Marketplace, the 110,000 square foot lifestyle center located in Milford, Connecticut. The center opened 85% leased and committed and features Ann Taylor LOFT, White House Black Market, Jos. A. Bank and others.

Also in October, we opened Cobblestone Village at Palm Coast. The 278,000 square foot shopping center is anchored by Lowe's and Belk and features approximately 23,000 square feet of shops. In September, we celebrated the grand opening of York Town Center, a 294,000 square foot shopping center located near our 771,000 square foot York Galleria Mall in York, Pennsylvania. The center is over 97% leased and committed and is anchored by Dick's Sporting Goods, Best Buy, Bed Bath & Beyond, Ulta Cosmetics and others.

In Bel Air, Maryland, the 39,000 square foot lifestyle addition to Harford Mall opened in September. The expansion is 95% leased and committed with new retails and restaurants, including Bonefish Grill, Five Guys and Lane Bryant. At Northpark Mall in Joplin, Missouri, we redeveloped a former Wards location into a Steve & Barry's, which opened in August and T.J. Maxx, which opened in October. This box was vacant when we purchased the mall in 2005 and we were able to extract significant value from this redevelopment. At WestGate Mall in Spartanburg, South Carolina, Cosco opened in August in the location of the former Proffitts department store.

In just a couple of weeks, we will celebrate the grand opening of The District at CherryVale, an 84,000 square foot lifestyle addition to CherryVale Mall in Rockford, Illinois. Barnes & Noble, Chico's, Coldwater Creek and other retailers will open in the new addition. The District at CherryVale is a prime example of the value creation that we can achieve in many of our properties. CherryVale Mall is an extremely successful center dominating the growing city of Rockford. The population of business growth in the area had attracted another developer who was looking to build a competing lifestyle center.

As the owner of the dominant retail facility in the city, when we announced our plans for The District at CherryVale, we were able to attract the upscale, lifestyle tenants to our project and keep the other project from getting underway. This is a perfect example of the barriers to entry that market dominance provides our Company.

During the third quarter, we signed a total of approximately 1.2 million square feet of leases, including approximately 543,000 square feet of development leasing and 624,000 square feet of leases in our operating portfolio. The 624,000 square feet was comprised of 288,000 square feet of new leases and 336,000 square feet of renewal leases. This compares with a total of one million square feet of leases signed in the third quarter 2006, including 297,000 square feet of development leasing and 700,000 square feet completed in the operating portfolio. Of the 700,000 square feet in the operating portfolio, 340,000 square feet were new leases and 360,000 square feet were renewals.

For stabilized mall leasing in the third quarter on a same space basis, we achieved an average increase of approximately 7.1% over the prior gross rent per square foot. Year to date for same space stabilized mall leasing, we have achieved an average increase of 9.6% over the prior gross rent per square foot. Stabilized mall occupancy rose 80 basis points to 93.2% from 92.4% in the prior year period.

Total mall occupancy at the end of the quarter increased 50 basis points to 92.8% from 92.3% in the prior year period. Total portfolio occupancy declined 20 basis points in the prior year period to 92.4%. Occupancy in the associated centers declined to 92% from 94.9% at quarter-end as a result of the opening of York Town Center with an occupancy of 70%. York Town Center is now over 98% leased and committed and is currently 82% occupied.

In October, Bombay announced that they would be entering Chapter 11 and closing their stores. We currently have 14 Bombay locations representing 59,000 square feet and $2.1 million in annual gross rents. Bombay will be keeping their stores open through the holidays.

Same-store sales increased 1.2% year to date for reporting tenants 10,000 square feet or less in stabilized malls. Rolling 12-month average sales increased 1.5% as of September 30 to $345 per square foot compared with $340 per square foot in the prior year period. Occupancy costs as a percentage of sales was 13.7% for the nine months ended September 30 compared with 13.4% for the prior year period.

Now I will turn the call over to John for our financial review.

Thank you, Stephen. During the third quarter, we achieved total FFO per share of $0.76 compared with $0.78 per share in the prior year period. For the nine months, we recorded FFO per share of $2.27 versus FFO per share of $2.37 in the prior year period. Non-core items impacting FFO per share in the quarter included 1/10 of $0.01 of lease termination fees versus $0.04 per share in the prior year period.

During the quarter, we recorded a non-cash tax income tax provision of $0.02 versus none in the prior year period. As we reported in the third quarter of last year, we recorded a pickup to FFO per share as a result of revisions to the depreciable lives of certain assets acquired that resulted in an increase in the net amortization above and below market leases. We did not have the benefit of this adjustment in the current quarter. As a result FAS 141 in the quarter was $0.02 per share versus $0.04 per share in the prior year period. These items negatively impacted the quarter by $0.08 per share.

During the quarter, there were several instances where actual results differed from our guidance assumptions and negatively impacted our results. I would like to take a minute to review a few examples. Occupancy in the stabilized mall portfolio increased 110 basis points from the second quarter. While we are pleased with this increase, the occupancy occurred later in the quarter than we had anticipated. This impacted FFO by more than $0.01 in the quarter. We had also anticipated a 10% increase in new mall portfolio occupancy from the second quarter and actually achieved a 7.5% increase. This also impacted our results by $0.01.

As we mentioned earlier, the income tax provision was $0.01 higher than we anticipated in the quarter. We were impacted by increases in interest expense during the quarter that was higher than we projected. This was a result of a larger ramp-up and LIBOR on our $1 billion of floating rate debt.

We also had a deferred gain on sale of an outparcel that we did not have the benefit of in the third quarter and had anticipated receiving in our projections. In total, these items significantly impacted our results in the quarter.

Same center NOI increased 3.9% in the quarter and 2% year to date, excluding lease termination fees. Same center NOI grew as a result of strong occupancy increases in the stabilized mall portfolio of 80 basis points and rental rate increases. Same center NOI during the quarter, including lease termination fees, increased 90 basis points and declined 40 basis points for the nine months. Whilst core same center NOI growth was strong, it was not as strong as we had originally anticipated. As I mentioned earlier, this was primarily a result of occupancy for in-line space and ancillary contributors such as specialty leasing occurring later in the quarter.

Additional highlights include our cost recovery ratio for the quarter ended September 30, 2007 was 105.0% compared with 102.4% in the prior year period. For the nine months ended September 30, 2007, the cost recovery ratio was 102.1% compared with 104.3% in the prior year period. We expect the cost recovery ratio for the full year to be in the 100% range.

G&A represented approximately 3.3% and 3.9% of total revenues in the third quarter and nine months ended September 30, 2007 compared with 3.8% and 3.9% of revenues for the quarter and nine months ended September 30, 2006. Our debt to total market capitalization ratio was 54.3% as of the end of September compared with 46.9% as of the end of the prior year period.

Variable rate debt was 10.9% of the total market capitalization as of the end of September versus 10.1% in the prior year period. Variable rate debt represented 20.1% of total debt compared with 21.6% in the prior year period.

Our EBITDA to interest coverage ratio for the quarter ended September 30, 2007 was 2.27 times compared with 2.51 times for the prior year period. During the third quarter, the Company repurchased 148,500 shares at an average price of $34.78 per share. We are continuing to monitor the price levels for opportunities to execute additional amounts under the stock repurchase plan.

As indicated in our press release, we have adjusted our guidance to incorporate the net impact from the following items. We have increased our outparcel sale estimates for the full year by $0.05 to a total of $0.15 per share. We have increased our guidance by $0.06 per share to account for a management fee we expect to receive related to Galileo transaction in 2005. If you recall, we expected to receive a $7 million fee in the third anniversary of the transaction close.

We have increased our guidance by $0.01 per share for the Westfield transaction. This takes into account both the new NOI from the property, which is offset by interest and preferred distribution expense. We have reduced our guidance by $0.05 per share for an increase in our projected tax provisions for the full year to $.10 per share. Year to date, we are $0.04 and we anticipate another $0.06 in the fourth quarter related to higher gains on outparcel sales and the Galileo fee income we noted earlier.

As I mentioned earlier, although same center NOI results for the quarter were strong, they were not as strong as we had expected. Based on these results and our expectations for the fourth quarter, we are adjusting our same center NOI projections for the year to a range of 0% to 1%. This has an impact of reducing our guidance by $0.09 per share.

Incorporating the net $0.02 per share reduction from these new factors and assumptions, we are revising our guidance for 2007 FFO per share to a range of $3.35 to $3.41 per share. The guidance will continue to exclude the impact of any future acquisitions.

In October, we announced that we had closed on two separate transactions with the Westfield Group involving four St. Louis area regional malls valued at the aggregate of $1.03 billion. In these transactions, the Company gained economic control of four malls in the growing suburbs of St. Louis.

Yesterday, we were pleased to announce the Board of Directors approved a 7.9% increase in the regularly quarterly cash dividend for the Company's common stock to $2.18 per share annually from $2.02 per share. This dividend increase represents the 15th consecutive annual increase and we are excited to continue to share with stockholders some of the growth that our portfolio has been able to achieve.

As we head into the fourth quarter, we maintain confidence in our business as evidenced by our 7.9% dividend increase. We have a core portfolio of dominant retail centers that will continue to provide solid growth through effective management and leasing, as well as value creation from expansions, renovations and enhancements to the property.

In addition, our development pipeline is stronger than it has ever been with more than $460 million currently under construction and we are continuing to announce new exciting projects regularly. While the acquisition environment continues to be difficult, we have successfully completed one of the largest transactions in our Company's history at a very attractive pricing and financing. Real estate is a long-term business and our view for the long term is the strongest it has ever been. We appreciate your continued support. Thank you for joining us today. We would now be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS). Jay Haberman, Goldman Sachs.

Good morning, John. Just a question looking at the leasing statistics and obviously looking at the new leases and the renewals and obviously the rate of increases continues to be fairly modest looking at the quarter or even compared to year to date. I am just trying to get a sense of what are you seeing from tenants and basically are asking rents -- are you starting to see any increases in your markets or are you just seeing pressure given the modest sales productivity you have seen year to date?

Hey, Jay. It's Stephen. I think it is a little bit of both. It depends on what type of retailer you are talking about. I mean we charge our leasing people with getting 15% to 20% increases and that is what their goal is. We are not achieving that, but we also think we have made progress from where we were earlier in the year. The renewal spreads were flat to even down a little earlier in the year, now those are positive. In new leasing, the numbers are picking up. Our average base rents are higher, so I feel like we are making progress. I wish it was better and faster, but I think we are making some progress in that area.

Can you just give us a sense of tenants maybe by category where you are seeing strength in terms of releasing or new deals and maybe where obviously it is more challenging?

Well, I think that in some of the family apparel category, there continues to be a lot of strength in terms of demand for expansion among stores like American Eagle, Arrow, Hollister. Those companies are very expansion-minded with new concepts and with their existing concepts. Jewelry is an area where there has continued to be some good results. Shoes has been a little weak in the last month or so, but we think that is more of a cyclical thing. So hopefully that is helpful.

Okay, thank you.

Christy McElroy, Banc of America.

Hey, good morning, guys. Just going back to your comments on shoes, I know you mentioned on the last call that of the 250 stores that Footlocker plans to close, you have only two of them. We've heard that they may close more next year. Finish Line may start closing stores as well. Can you give us your views on why you think some athletic shoe retailers are having so much trouble right now while others like Nike continue to expand? Is it a function of overly aggressive expansion?

I think part of it is that there just have been so many new types of products introduced that are at lower price points that seem to be popular with the customers -- Crocs and different types of sandals and things like that. So I think it has hit the shoe stores more at the higher end of their price points and it is a fashion business and some of these sales trends come and go. And right now, they are probably suffering a little, but we don't see it being a permanent type thing. And I mean we are still doing good business with the shoe stores in terms of them renewing their leases. Footlocker indicated to us that they had two stores of our 190 that they wanted to discuss closing. So we feel very good and even if there are more, their stores are well-located and the shoe category is a really important category in the mall and we really aren't concerned over the long term about it.

Okay. And then just John, in lowering your same-store NOI growth forecast for the year, can you just walk us through specifically what is driving that? How much of that -- I guess it was roughly 100, 150 basis point decline in your same-store growth forecast. How much of that was the delayed occupancy just in Q3? How much of that was lower ancillary income and was there anything else that was driving that revision?

Basically the delayed openings was one of the most significant items. As an example, what impacted us was the Whole Foods and the Wild Oats merger basically had an impact upon us as well. So that was it. So CherryVale was a later opening than we had projected and things such as that.

Jonathan Litt, Citi.

Ambika Goel. Hi. This is Ambika with John. Can you talk about your outlook at this point for core growth in 2008? Should we expect it to be stable with your lowered '07 same-store NOI forecast and how do potential bankruptcies tie into that forecast?

Ambika, I think what we will do is that we will give the guidance in our fourth-quarter numbers. We are very cautious with regard to giving those out at this point in time looking to see what happens with regard to the total overall portfolio. So we'll give those out with our fourth-quarter guidance for 2008.

If you look, Ambika, at the quarter, I mean we had 3.9% growth over, excluding lease termination fees. So I mean I think that even though we haven't been able to come up to the level that we thought we would be able to given the slow start we had this year, the numbers for the quarter were still pretty good.

I think from our point of view, we kind of started this year in a hole with the first quarter and we have been digging out and it just hasn't happened as quickly as we had hoped it would, but still to look at 3.9% for the quarter, excluding lease termination fees, is a number we are happy with. Always like to be better, but we feel like that is a good number.

I guess anecdotally do you feel like the environment for leasing and bankruptcies is improving or getting worse?

Well, we just came off two big ICSCs. One was in Chicago and one was in Atlanta and then we have got one in New York in early December and I don't think we feel any type of doom or gloom or any type of negativity. To say there is not concern out there just given all the talk in the credit markets and all that would -- that would be -- that just wouldn't be right, but the retailers haven't cut their expansion plans. '08, there are a lot of cases -- they have already done their deals for '08. They are talking about '09 and it is -- I mean we have done a lot of our renewal leasing for '08 as well. So I think that the good thing about the mall business is it is a stable business and even though some retailers might have volatility, the mall business is more stable and our portfolio is more stable.

Okay, thank you.

Paul Morgan, FBR.

Good morning. Could you talk a little bit about sort of the international strategy that you are taking? What type of investment volumes and yields are you looking to do over the next say three-year period and what is making the proposition so much more attractive now versus your other potential uses of capital, buybacks or acquisitions within the US?

The international stuff takes quite a while to develop and we have been looking at opportunities internationally for a couple of years now. Last year, we did the investment in China and we haven't elected to do anything else. We are watching that and seeing where that goes and we just announced Brazil and we are going to -- this will be our first one. This project is going to open in '08 and the returns are mid-teens. So they are very attractive when you look at development and recognizing that it is an international investment, so there needs to be some kind of premium.

We haven't -- we are going to look at acquisitions and communicate in terms of international similar to acquisitions where we just can't project a certain amount, but I think we are encouraged by the opportunities that we see in Brazil to do more and hopefully, we will be able to do more going forward over the next two or three years, but we are going to be cautious. We are not going to do projects that don't make sense either and don't have really strong pre-leasing and our partner there is someone that we have gotten to know over the past couple of years and we are comfortable with and we think it is going to create some good opportunities for us.

I mean do you think this is on the order of $100 million, $150 million in the next couple of years or less than that -- ballpark?

We just can't say at this point.

Okay, thanks.

Lou Taylor, Deutsche Bank.

Thanks, good morning. Given the delays in opening these stores, are you going to underwrite your future development any differently?

Well, I think that there were a couple of unique circumstances that affected the delays. It is really hard to anticipate a merger dragging out like the Whole Foods/Wild Oats merger did. And that is something that is hard to underwrite. With some of the Florida projects, we are still paying the price from hurricanes a couple of years ago because things got backed up, but now those markets, the residential slowed down and so the construction business is in a lot better shape for the projects like Port Orange that we just announced. So we are confident that we will be able to get that opened in the timeframe and get the small shops opened.

So I think we are learning from what we did this year and the open-air centers are different in terms of getting the stores open together because it is not like a mall where you have a grand opening, you cut the ribbon and everyone opens. It is a lot more difficult to coordinate openings with the boxes and the retailers and the restaurants. But going forward, I think we have a lot better sense of what we need to do to make that happen and to do a better job in that area.

Okay. And then just as a follow-up, I mean given the difficulty executing and meeting your own targets, why raise the dividend so much? Why not have a smaller increase because clearly you are going to need capital for development and new equity doesn't really look likely anytime soon? So can you give us the rationale for the big increase?

Lou, I think that we looked at what we have done in the past and what we have in the pipeline and the ability to share some of that growth with our shareholders basically drove that. In addition to that, all of our covenants with our banks, etc. are in very good shape, so we don't have to worry about our lines of credit. The market vagaries with regard to our stock price is the only thing that inhibits us from going into the capital markets to sell common equity and so we basically have that ability to borrow on that basis and also these joint venture opportunities -- a lot of them are basically with partners who fund their portion of the equity so that our equity portion is smaller and our development fee income will be greater.

Thank you.

Tony Howard, Hilliard Lyons.

Good morning to everybody. Thank you for the dividend increase. Follow back to the past question as far as debt levels with the seamless acquisition, where do you project that your balance sheet to kind of look like at year-end and especially with variable debt increases?

Well, I would say that the vagaries of the market are something that we can't guess or estimate. When we did the Dick Jacobs transaction, our debt to market capitalization number went up to around 63%. We were able to bring that down fairly quickly over that period of time. We would hope that we could do the same thing here, depending upon the acceptance of the market from a stock price standpoint. But from the standpoint of floating-rate debt variable-rate debt, we are basically locking that up once the project opens to eliminate that risk, and we will continue to do that.

So I would say with the development of pipeline that we have in place, it is always going to be difficult to push that variable-rate debt down much below the 20% number, but we are focused on that as well.

Okay. For my own question, G&A was down not only year-over-year but it was down it looked like from $10 million sequentially. Were there any unusual items this quarter or the previous quarter, and what is a good run rate?

Well, I think that the run rate we think is probably in the 3.8% to 3.9% range, which has been normal. What happens is that the second quarter we have a lot of ICSC and other fee expenses that hit us at that time. So we think that that run rate in the 3.9% range is probably where it should be.

Jeff Spector, UBS.

Good morning. I apologize if you already said it, but did you say the main cause for the lower same center NOI growth from what you had forecasted?

It was occupancies and delays in getting those tenants open faster. What we had anticipated with a lot of the specialty leasing and things such as that, that it would have opened earlier in the quarter and it really opened later in the quarter. And in addition to that, the expansions and some of those were delayed, as well as getting those tenants in place.

As Stephen pointed out, we are learning that lifestyle center elements are a little different than the regional mall business, and we hope that we are back on track as far as getting those things eliminated and getting people to open more on a timely basis.

And those centers are in the same center NOI calculation?

Yes, they are.

Okay. And I'm sorry, if I could just ask one other question. In Brazil, can you just explain why Tenco was looking for a partner and sort of what are you doing as part of that agreement?

In Brazil, basically, there are no debt markets at this time, and it is basically an all equity market. So our partner, Tenco, had basically been building centers and then he would sell those centers to basically generate additional dollars to go forward, so he wasn't able to build up a big portfolio.

Eduardo who is the principal of Tenco has a great track record. He has been in the business for a number of years, and so we felt very comfortable and confident with him. His strategy also matches off with ours where he is going in certain market areas where there is less competition and he is able to get better yields and better returns. So we felt very comfortable and confident.

And then Eduardo needed us from the standpoint of bringing equity so he could spend more time on development and leasing than going out and attracting partners to do future deals on those. So I think we are really excited about that, and he is -- he is a guy that we think can produce good for us, and we can see good product out of him as well as good returns.

Great. Thank you.

Matt Ostrower, Morgan Stanley.

Good morning. I just come back to the balance sheet again. I guess can you just talk about -- I know you have partners in some of these deals, but looking at your sort of sources and uses or I guess mainly uses of funds over the next year or so, are you comfortable letting leverage drift back up again? I guess I would rather look at it in terms of fixed charge coverage, given what happens with the stock here. But would you go down below say a two times fixed charge coverage the way you guys disclose it? Would you be happy sitting there sustainably?

And then I guess it looks to me like you are trying to conserve capital to some degree. You sort of bought back some stock it looks like earlier in the third quarter, but then when Westfield got announced, it looked like you stopped even though the stock price came down a lot. Can you comment on combining the sort of sources and uses with your willingness to keep buying back stock at this point?

That is one long question.

Sorry.

That's okay, Matt. Let me see if I can answer those going from the back going forward. With regard to the stock buyback is that we saw the stock price creeping back up and that is why we basically only bought a small fraction of that amount. We will continue to monitor that and as we sell off assets and sell off properties, we will basically see the opportunity to buy back that stock and we will continue to monitor that and have those opportunities.

As to the fixed, we think that the balance sheet is important, but we also think that the coverage ratios are very, very important and we have maintained and we think that with what we have going we will maintain at least in excess of the two times coverage ratio. So the balance sheet, we are cognizant of it, but, as you will recall, we basically pursue the theory and the practice of doing nonrecourse debt on our projects once they are open so that we eliminate that. The portfolio basically has some refinancings that we can accomplish and take out excess funds out of those to pay down that and then in addition to that, assets will continue to be viewed as potential for sales when we see the opportunity to maximize the value on those assets.

And John, just to follow up, I guess part one just on the capital uses piece of it, the sources rather, you are saying that in today's capital market environment, you can pull out enough excess proceeds on your refinancings you believe in order to continue financing what you have in your pipeline without a need for additional external funding and even if that drops you to a two times coverage sometime in 2008, you are still comfortable with that?

Yes, we are.

Okay. And then just a second follow-up on the buyback, so not that you have bought back that much, but you did continue buying back post Westfield sort of deal announcement, just to be clear about that.

Yes, we did.

Okay. Thank you.

Craig Schmidt, Merrill Lynch.

Hey, looking at your mall sales, is there any area of particular weakness that may be bringing down the total such as moderate versus better malls or malls in major markets versus smaller markets?

I would say geographically a couple of the areas in the Gulf and Florida, those malls are coming off really strong gains last year in the wake of hurricanes and things like that. So the comp sales this year are weaker just because of what they were going up against and they have even had decreases because they had one-time events where people were getting extra subsidies and all that that drove sales and now they are kind of coming back to normalized levels. So that has impacted the sales across the portfolio.

And then I think we don't see a differentiation between larger market/smaller markets. That hasn't really been an impact in terms of the sales numbers. There is always a few markets where there might be new competition or something unique to that market that impact mall sales and I mean those are something that we look at and we focus on, but I wouldn't say there is a macro trend like you are talking about that is something that we are concerned about.

Okay, thanks. And other NOI in terms of the four buckets, what drove the $2.5 million gain in that area?

We had some mortgages and things such as that that drove the interest rate on those and some subsidiary business, our taxable REIT subsidiary had some nice profitable gains in it.

Okay. Thank you.

Michael Mueller, JPMorgan.

A few questions. John, Galileo, just to be clear, that was not in the original guidance, correct?

That's correct.

Why wasn't that in the original guidance?

I think it was just an oversight or we just did not -- we don't include those type of things in our original guidance.

Okay. Going to the tax provision, $.10 this year, it sounds like that is being boosted up because of the items you were talking about in the fourth quarter. Going forward, should we think of it in terms of the old run rate, which I think was around $0.05 a year?

I would say $0.05 or $0.06, but basically, as you know, as we sell outparcels, that is now taxed at the ordinary gain rate, so that is what impacts us as well. And then as to the Galileo transaction, it was basically -- they had not exercised the option at that time. Under the original documents, they had until the third quarter of this year to exercise that option. If they failed to exercise that option, we would have gotten $15 million over a specific period of time, $1 million a year. So from our perspective and from the auditor's perspective is that you couldn't count that into your projections.

Okay. So you had to wait and see. Okay.

Correct.

And then last, in other income sequentially, it looks like it went down by about $3 million. What was happening there?

The TRS was what impacted it somewhat.

Okay, great. Thank you.

Ben Yang, Green Street Advisors.

Good morning. Going back to the Westfield deal, when you announced that transaction back in August, Westfield was to retain a 420 million preferred unit stake in the partnership. When the deal closed two months later, it looked like that their preferred stake fell to 404 million. Is it fair to say that the property income in those assets fell between the time you announced the deal until the time it closed?

What I think it is is that we had announced that there were some last-minute adjustments. NOIs have not fallen in those properties. We are still very bullish about those opportunities. Our management and leasing teams are in place. We feel that there is still great opportunities in that portfolio.

What had not occurred at that closing was that we will be buying the Lord & Taylor space for $12 million, which is an expansion to West County, which you will recall is the mall that does in excess of $450 a square foot. So we will be buying the Lord & Taylor space in the next couple of months and they will issue about $12 million of units at the 5%. So we are still very comfortable and confident in our ability to increase occupancies, increase those NOIs as well.

Thanks.

David Fick, Stifel Nicolaus.

Hi. Good morning. It's Nate here with David. Can you just talk about your tenant retention levels in '07 and how that compares to the last few years?

I would say they have been pretty comparable. We are running in the roughly 70% level of tenants that stay and a lot of the ones that don't stay, we are working to replace them. It is something that we are encouraging more so than just the tenants falling out and that is comparable to what it has been in '06 and how we see things going forward as well.

Okay. And what would you say the percentage -- what percentage of that 30% would you say you did not want back?

I would say maybe half of that is space where it will take a little bit longer to release it.

Okay, thank you.

Rich Moore, RBC Capital Markets.

Good morning, guys. To follow up real quick, John, on Craig's question, that other NOI, that seemed to have like 130 basis points in same-store NOI growth. Do we see more of that in the fourth quarter and more of that in next year or is that sort of a one-time phenomenon? That other category for NOI?

Right. We think it is a one-time situation.

Okay. And then when you guys look at the same-store pool, how big is the same-store pool for the malls I mean?

We will get back to you on that, Rich, just to get you --.

And then just to follow up real quick on that, is the non-stabilized group of malls, is that included in same store and what is going on there that we saw some what looked like a base rent decline from second quarter '07?

It is included in there.

And is there any reason that those -- is that sort of redevelopment type stuff, John, or is that --? Because it looked like base rents actually fell from the 2Q level and I am just curious if there is weakness in there or if something special is going on with your redevelopment program.

No, it was Gulf Coast where we brought that into the new mall area that basically impacted that. So we don't see any problems in that respect and that also included Alamance Crossing, so those two basically were the instruments that caused that.

Okay, great. Thanks, guys.

(OPERATOR INSTRUCTIONS). Jay Haberman, Goldman Sachs.

In terms of the Bombay store closings, you obviously mentioned the 14 locations, $2.1 million of rent. Can you give us a sense, is that rent pretty much in line with current market and I guess what sort of demand are you seeing? Have you started marketing those spaces yet?

Yes, I mean we have definitely started marketing and those rents have been -- those are in line. Bombay wasn't a super high rent payer because of the category and we have also been watching them for a while. We have had them on our watch list for a couple of years now, so it is not something that we didn't anticipate as a possibility. I mean I don't think we thought they would be closing all their stores in the US, but the space is space that we thought that we will find releasable.

Okay. And then I guess back to Brazil, did you give a specific yield? I don't recall hearing that.

I just gave a range in the mid teens, nothing specific.

Okay, thanks. And then Tom has a question as well.

Good morning, guys. You provided an update on the delays you experienced at your Milford, Connecticut project, but could you elaborate a bit on the delays at Gulf Coast Towne Center and Alamance Crossing and maybe talk a little bit about the progress you have made towards additional store openings at those locations?

Yes, sure. Well, Gulf Coast, right now, it was 74% occupied at year-end, which was up substantially from where it was at the end of the second quarter and by year-end, we expect that to be over 80%. So we have made progress there. We again aren't happy that it has taken as long as it has, but it is finally getting to the levels where it should have been earlier in the year. Alamance, we had some delays that we talked about in the second quarter, but now the project is open, stores are open, we are over 70% open and that is not an impact going forward.

Jonathan Litt, Citi.

Hi. This is Ambika with John. Just staying on Alamance and Gulf Coast, are you above I guess the co-tenancy rent triggers, so all the tenants that are there are paying rent at this point?

The only -- at Gulf Coast, we are and so that is not a factor. At Alamance, with Barnes & Noble, we have to have a certain number of restaurants opened for them to pay full rent and we haven't achieved that yet and won't achieve that until '08.

Okay. And then just overall, other retail mall REITs have commented that they are concerned about developments and they could flow in the future given what is going on in the housing market. Given CBL's targeted ramp to $400 million to $600 million of developments a year, do you -- could you see that slowing down a bit? Do you see the risk that other companies have mentioned?

We don't see it slowing down. Our pipeline -- I mean when we started development, we got the anchors in place, we got pre-leasing in place. So not that there isn't risk during the process, but we are not going to start a new project like Settlers Ridge where we announce the anchors or Port Orange where we announced the original anchors unless we have got enough confidence that it is not going to be impacted by housing or other things in the local economy.

So I think that the other thing that we are hoping to see and starting to see is that with the tighter credit markets, we will continue to see good joint venture opportunities and we are going to use our capital wisely, but we think that there is going to be some opportunities that come our way because of that.

Okay. And then just to confirm, the co-tenancy rent triggers are only an issue at Alamance and Gulf Coast and going forward, that should be -- we shouldn't see that in future developments?

Well, at Milford, there is still -- we still have co-tenancy that is tied to us getting the supermarket opened. The shops there don't pay full rent or some of them I should say don't pay full rent until the supermarket opens and that is going to be in '08, so that is still something that we are working with. When we budget '08 and come out with numbers for '08, we will build in that type of situation.

Okay. So all other assets are projected to be on schedule and on time?

That's right.

Okay, great. Thank you.

Paul Morgan, FBR.

Good morning, again. As you are working on the lifestyle center part of the development pipeline and leasing, there was a lot of discussion over the past couple of years of the proliferation of kick-outs and co-tenancies and sort of loose lease standards and I am wondering what your impression is now that some of the lifestyle center, kind of the core group of retailers are struggling more from a sales perspective and not growing as fast, whether you think you might see fallout if sales momentum doesn't pick up over the next year and then how you might respond to that, whether you think that risk is relevant?

Well, I would say that it is a risk, but usually the way those are structured if a tenant has some type of co-tenancy or a kick-out, they also have to make a payback of unamortized tenant allowance and there is -- there is a lot of cost for those stores to close. So unless their business is really bad, it is not something that we typically see and yes, it is something that we wish wasn't there in terms of the quality, but we think that when you balance in the anchors, which we have in our lifestyle center, so we are not as dependent on the small shops and other factors like that, that we feel good about the stability of the projects long term that they will stay at high leasing levels even though -- I mean I realize what you were saying that some of these guys are struggling now.

Also, someone made the comment to me the other day -- Chico's and Coldwater and Talbots, I mean they are still -- that customer is buying somewhere and I know their stocks are down, but I know sales haven't been as strong as they wish, but they are still in the right spot in terms of demographics and the women shopper and the aging population. So even though those companies are down in the dumps now, I think long term, they are still in a good place going forward.

Do you think a lot of the projects that have been on the drawing board and publicized by the developers are maybe a bit more on hold now because you did need a few of those core tenants to be signed up to get it off the ground and then they all joined and maybe that is not quite as easy as it was?

We have seen some projects fall out in some of our markets that were proposed as lifestyle centers and they were a stretch originally and with some of those retailers being more selective, we have seen some of those projects go away.

Thanks.

Jeff Spector, UBS.

Just to follow up on the leasing spreads, I think you said you did not achieve your target leasing spreads. How do you make sure going forward you hit those targets?

We look at every deal. We have a process where if leases are -- the renewals or the new leases are below a certain level then it has to get additional approvals. We are continually reinforcing to our leasing division the need to improve those leasing spreads and as far as what they propose to retailers, looking harder at occupancy costs as a percent of sales and seeing where certain malls we can push those levels higher because sales per square foot are higher. So it is all of the above.

What is the target occupancy cost to sales you are trying to hit today in some of the existing properties and the new projects?

Well, I would say, we are thinking we'll end the year at about 12.5%, but in some of the malls that are doing in the high $400s, $500 a foot range then we think we can push up higher than that.

And then just to follow up on the Chico's and Talbots, Coldwater, it sounds like you are not worried about that category going at this point. Is that correct?

That's correct. I mean those guys -- they have all been expansion-minded. Their stocks are really weak this year, but I think they have good fundamentals and we are constantly in touch with their real estate people. We have good relationships with each of those companies. They are good balance sheet, solid companies going forward.

Rich Moore, RBC Capital Markets.

Hi, again, guys. Hey, a couple quickies. CapEx for the quarter was up a little more than usual. Anything special going on there? Are you having to spend more to get tenants in?

No, nothing unusual. We just were getting those tenants in.

Okay, and then John, last thing is remind me again what the non-cash tax item is?

Yes, the tax is a non-cash item.

Oh, the whole thing?

The entire thing, yes. It is really down in the taxable REIT subsidiary and there are losses in the taxable REIT subsidiary, so it is a non-cash item and therefore, not withstanding what we did, Lou's question earlier, is because of that, you can basically afford to pay that dividend and also continue the growth, the expansion program and the growth program we have going forward.

Okay, good. I got you. Thank you very much.

At this time, we have no further questions in the queue. (OPERATOR INSTRUCTIONS).

Well, we appreciate everybody calling us today and look forward to the results for next quarter and we will see a lot of folks at NAREIT and good shopping. Thanks.

This does conclude today's presentation. We thank everyone for their participation. You may disconnect your lines at any time.